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What’s best Refurb or Knockdown?

By Matthew Saunders

For many developers, the plot and its location are the predominant factors when planning to substantially improve the property on it. However, the next crucial step before planning is to decide whether to work with what is there by extending and renovating, or knockdown the property and start again. The split on this is currently roughly 50/50.

This blog looks at some of the factors to consider.

The main considerations essentially narrow down to 3 topics: cost, style and planning.

Cost

This will usually be the first focus.

While it seems counter-productive to demolish a decent property and build again on its footprint, the margins can be fine. Demolishing a property is not expensive (gravity plays a big role!) so it is essentially the costs associated with removal of the debris.

The real advantage of a complete rebuild is VAT. Work on an existing structure attracts 20% VAT on materials and labour, while labour on a new structure is zero-rated and you can claim back on the costs of materials.

If the property is in disrepair, then it makes sense to eliminate the potential for unforeseen problems and start from a sound base. If, however the property is sound and foundations are sufficient - this is where the savings are made in terms of extending and refurbing because many planners now insist on piling for new builds, which is not a cheap option. New builds also need warranty approval which can be several to tens of thousands of pounds, a cost often overlooked.

Either way, do be aware that demolishing a property can have different impacts on the funding avenues as lenders need to be fully aware and give approval.

Style

Some developers are attracted to a particular style or era of house and want to keep it ‘original’ and add to it in a way that is in-keeping with its time and design. The market for period properties remains consistently strong, therefore, knocking down a property with these characteristics may be beyond consideration.

Most developers see value in bringing up to date properties that have ‘stood the test of time’. This generally involves improving layout (for example more open family spaces today), energy efficiency, floor space and orientation. Modern living has evolved considerably.

In this respect, some properties may require so much structural adjustment to achieve this that working with a ‘blank canvas’ enables greater design freedom and options.

Planning

This can be as simple or as complicated as someone wants to make it, and most developers will have a wealth of experiences and stories to tell. On paper, there are parameters to work to but a positive outcome will depend on the appointed planning officer and the surrounding area.

In recent years local planning has given a lot of opportunity to add floorspace to a property in terms of extensions and loft/garage conversions. These can both be considered cost-efficient ways to add value. A successful planning application can achieve permission in a matter of several weeks if handled properly and is usually the path of least resistance.

New builds are a different story. Planners tend to require a lot more boxes to be ticked on new builds, from scale to even the height of light switches and everything in between. Consequently, this involves more supporting documentation such as highways surveys, soil samples, energy predictions and landscaping detail. All this will be heavily scrutinised by the local planning authority, will need input from relevant independent professionals and adds time to the planning process. In short - added costs.

To summarise, it is often commented by developers that take on extensive refurb projects that it would have been simpler to knock down and rebuild. There can be an element of truth in this, but the financial and practical implications need to be weighed up first to maximise the plot and ultimately the value of the end product.

Clearly there is no easy answer to the question ‘refurb or knockdown?’. However, on all projects one thing is crystal clear - give due thought to all 3 key factors – cost, style, planning – they’re intrinsically linked and need careful consideration on each project.

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